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How Telematics May Help You Save Money on Car Insurance

Updated: August 2020

Telematics (or a telematics system) is a method used to collect information about your mileage and driving habits. Insurers generally use telematics data to offer personalized driving feedback, safe-driving rewards or potential cost savings on your car insurance policy for safe driving.

Telematics may also come into play if your insurer offers mileage-based insurance policies (sometimes called "pay-per-mile insurance").

Telematics data is typically captured by a mobile app or a small telematics device provided by your insurance company. If your insurer provides an auto tracking device, you can plug it into your vehicle's onboard diagnostic port (OBD-II port), which is usually located under your dashboard. Vehicles produced after 1996 typically have this port. In some instances, telematics data can also be captured directly through your car manufacturer, according to the Insurance Information Institute (III).

If you enroll in a telematics program with your insurer, you agree to allow the car, device or app to send this information to your insurance company.

If you're exploring your insurer's vehicle telematics program, these are three potential benefits:

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1. Personalized Driving Feedback

Telematics data generally provides real-time information about your mileage and driving habits. For instance, a telematics device or app records the number of miles you drive, your speed, and how quickly you brake. This technology can also analyze the time of day when you drive. This data can help you become more aware of your driving habits so you can be a safer driver.

Opting into a program may also provide you with an opportunity for cost savings. Some telematics data will likely incorporate your personalized driving behaviors into your insurance rating, which means if you avoid risky driving behaviors, you may save more on your auto premium compared to someone who is a riskier driver, according to the III. This can give you greater control over your auto insurance costs.

2. Safe-Driving Rewards or Car Insurance Savings

You may be able to get discounts and rewards just for signing up for a telematics program, as well as earn additional rewards later for being a safe driver, says the III. For instance, drivers may be rewarded for avoiding risks such as hard stops, traveling late at night or speeding.

3. Pay-Per-Mile Car Insurance

A telematics system is also a key part of pay-per-mile car insurance (also known as usage-based insurance). If you opt into this kind of program, your insurer may track the miles you drive via a mobile app or device you plug into your car. You may be charged a daily base rate and a per-mile rate for each mile you drive. Your insurer may allow you to review your trips and daily costs via an app or website.

With pay-per-mile insurance, you generally pay for the miles you drive and not for the miles you don’t. For low-mileage drivers, this often provides you with additional cost savings. In other words, if you drive less, you could pay less.

If you practice safe-driving habits, a telematics program may be one way to help you save money — and become a better driver. Contact a local agent to learn whether your insurer offers a telematics program.

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This content is for informational purposes only and may not be applicable to all situations.

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